Question

Why is competition important in a free market system? Select all that apply.

Competition causes businesses to raise their prices significantly.

Competition gives the consumer more options.

Competition encourages companies to make better products.

Competition can encourage businesses to offer lower prices.

Answer 1

In a free market system, the following reasons explain why competition is important:

1. **Competition gives the consumer more options.** - In a competitive market, multiple businesses offer similar products or services, providing consumers with a variety of choices.

2. **Competition encourages companies to make better products.** - To attract and retain customers, companies must innovate and improve their products, leading to higher quality and better features.

3. **Competition can encourage businesses to offer lower prices.** - As companies compete for customers, they may lower their prices to attract more buyers, benefiting consumers.

The statement "Competition causes businesses to raise their prices significantly" is generally false in the context of a competitive market; instead, competition tends to keep prices lower due to the presence of various alternatives. Therefore, it is not selected.